China's Wuhan city government invests in new chip factory

BLOOMBERG

Semiconductor Manufacturing International Corp (SMIC, 中芯), China's biggest chipmaker, said the Wuhan city government would invest as much as US$3 billion to build a factory in the central province of Hubei.

Wuhan will spend between US$1.5 billion and US$3 billion to build the plant, which can make 12-inch wafers, Calvin Lau, SMIC's investor relations manager, said in an interview yesterday.

Shanghai-based SMIC won't invest any money, Lau said. The parties signed a memorandum of understanding two months ago, he said.

SMIC last year started making 12-inch wafers at its Beijing factory, the first in China to produce the dinner plate-sized wafers that can yield double the number of chips than from standard 8-inch wafers. Provincial governments in China are attracting investments because chip industry wages there are about one-fifth of Taiwan's.

Lau declined to say how much the chipmaker will receive to design, build and manage the plant in Wuhan, and when construction will begin. SMIC can use the capacity at the plant to make chips for its customers, Lau said.

SMIC said it used 95 percent of its factory capacity in the first quarter, compared with 85 percent a year earlier, and 93 percent in the previous quarter. Factory use in the current quarter is likely to be between 93 percent and 95 percent.

Last year, SMIC formed a venture with United Test & Assembly Center Ltd, Singapore's second-largest provider of chip-testing services, to build an assembly plant in Chengdu. The average wafer factory worker there earns about 600 yuan (US$72) a month, compared with NT$20,000 (US$639) in Taiwan, SMIC Chief Executive Officer Richard Chang (張汝京) said at the time.

Overall costs in Chengdu, central China, are also less than 50 percent of those in Beijing because of value-added tax exemptions and lower labor and utility costs, he said.

The company is sticking to its planned US$1.1 billion capital expenditure this year, Chang said on April 28.

SMIC reported last month that its first-quarter net loss narrowed to US$8.7 million, or 2.39 cents per American depositary share, from US$30 million, or 8.31 cents, a year earlier. Sales gained 41 percent to $351.1 million.